Hedge fund manager paycheck: $4 billion

By Ben Rooney, staff reporterApril 1, 2010: 3:13 PM ET

NEW YORK (CNNMoney.com) -- After plunging during the financial crisis, the income of top hedge fund managers surged in 2009 to a record high as financial markets recovered from historic lows, according to a new survey published Thursday.

Altogether, the 25 top-earning hedge fund managers made a record $25.3 billion last year, according to rankings in AR: Absolute Return+Alpha, a magazine dedicated to the hedge fund industry.

The highest paid manager on the list was David Tepper of Appaloosa Management, who made $4 billion last year on investments in the financial sector.

"There was a lot of investing in bank stocks last year," said Michelle Celarier, editor of Absolute Return+Alpha, adding that Tepper braved the sector at a time when most investors were rattled by fears of a financial collapse.

George Soros, a Hungarian-born investor who made his name in the currency market, had the second largest annual income at $3.3 billion.

The top earner in last year's list, James Simons of Renaissance Technologies, came in third with a $2.5 billion payday.

John Paulson of John Paulson & Co., who made billions in 2007 betting against the housing market, took home $2.3 billion.

All told, last year was the best year since 2007, when the top managers brought in $22.3 billion, which was the previous all-time high in the nine year history of the survey.

The performance also marked a dramatic comeback from the beating managers took during the financial crisis. In 2008, top managers pay fell nearly 50% to $11.6 billion as global financial markets erupted in turmoil and credit evaporated.

After bottoming a 12-year low in March, however, the stock market staged a powerful rally in 2009 as investors bet the economy was poised to emerge from one of the worst recessions on record.

"The hedge funds that survived 2008 were able to capture the gains on the way up in 2009," said Nadia Papagiannis, a hedge fund analyst at Morningstar. Hedge fund returns rose 19.6% last year, she said, compared with a loss of 22% in 2008.

In addition to market gains, many of the top earners ran funds that avoided major losses during the crisis, she said. Those funds that stayed above the "high water mark" between profits and losses were able to charge fees of up to 20%, while funds that fell below could only charge 2% last year.

However, the outlook for the hedge fund industry is mixed, with many investors moving to the sidelines to await more confirmation that the economy has fully recovered.

As of February, hedge fund returns tracked by Morningstar were down 1%.

"This year is not going to be as lucrative as last year," Papagiannis said. "There's not enough of room for another rally as big as we saw in '09."

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